Forestry in voluntary carbon markets

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Only a small proportion of the potential of forestry to mitigate climate change is being realized (Nabuurs et al., 2007; Capoor and Ambrosi, 2008). The realization of this potential is dependent on the inclusion of greenhouse gas (GHG) emission reductions by forestry in global and national markets for greenhouse gas reductions. The previous chapters examined the role of forestry in national and global regulated markets; this chapter analyzes the role of forestry in voluntary markets.

The benefit of reforestation, in terms of climate change mitigation, is the difference between carbon (C) bio-sequestered with the forestry project and without the project. The global markets are in terms of tonnes of carbon dioxide equivalent (CO2e), rather than in C, and 1 tonne of C = 3.67 tonnes of CO2e, where CO2e is the expression of the global warming potential of GHGs in terms of their equivalence with CO2 (IPCC, 2007: Table 2.14, p. 212).

The global market for offsets in 2007, in terms of volume and value, was double that in 2006, and worth $64 billion; the volume of voluntary offsets within the total market in 2007 was only 2.2 percent and their value only 0.55 percent, but grew even more rapidly; fourfold in volume and threefold in value (see Table 3.1).

Unlike the regulated markets, where emitters have a monetary incentive to offset rather than abate emissions, or where forestry developers have an incentive to generate emission allowances for sale, the voluntary market does not rely on legally mandated reductions to generate demand. Instead, demand is driven by public image considerations, reduction of guilt, a sense of moral obligation, or all three. Forestry offsets are sold on the basis that a sufficient area will be afforested or reforested to sequester a mass of carbon equivalent to 1 tonne of CO2e emitted in the present, by some future year (often in 100 years' time).

Advantages of the voluntary market are that (1) there is a wide range of offset products available; (2) transaction costs are low relative to creating certified emission reductions (CERs) (carbon credits approved by the Clean Development Mechanism (CDM) Executive Board); and (3) it provides individuals as well as institutions and corporations with the

Table 3.1 Volumes and values of offset projects, 2006 and 2007

Market

Volume (Mt CO2e)

Value (US$ millions)

2006

2007

2006

2007

Non-CCX

14.3

42.1

58.5

258.4

CCXa

10.3

22.9

38.3

72.4

Total voluntary marketb

24.6

65.0

97.7

330.8

EU ETSc

1 044

2 061

24 436

50 097

Primary CDMd

537

551

5 804

7 426

Secondary CDMe

25

240

445

5 451

Joint Implementation

16

41

141

499

New South Wales

20

25

225

224

Total regulated markets

1 642

2 918

31 051

63 697

Total global market

1 667

2 983

31 148

a The voluntary offsets sales include those under the Chicago Climate Exchange (CCX), in which members can trade in offsets to meet their binding emission caps. b The voluntary market is very much smaller than the regulatory markets where the offsets are used to meet mandatory emission targets at the lowest cost. c EU ETS = European Union Emission Trading Scheme. d CDM = Clean Development Mechanism of the Kyoto Protocol. e In secondary CDM markets investors purchase a security from an investor rather than the issuer.

Notes:

a The voluntary offsets sales include those under the Chicago Climate Exchange (CCX), in which members can trade in offsets to meet their binding emission caps. b The voluntary market is very much smaller than the regulatory markets where the offsets are used to meet mandatory emission targets at the lowest cost. c EU ETS = European Union Emission Trading Scheme. d CDM = Clean Development Mechanism of the Kyoto Protocol. e In secondary CDM markets investors purchase a security from an investor rather than the issuer.

Source: Hamilton et al. (2008); Capoor and Ambrosi (2008).

opportunity to play a role in mitigating global warming, often as part of a 'carbon neutral' strategy, that is, where an entity abates or offsets all of its carbon emissions. Brokers and wholesalers link the demand for forestry offsets with a supply of bio-sequestered carbon via retailers.

The voluntary markets deal in verified emission reductions (VERs) which are verified either by third parties or the seller, or emission reductions (ERs) which are not; neither is tradable in the official exchanges set up under the Kyoto Protocol or by governments, such as the Automated Power Exchange in California (Energy-Exchange, 2008) and the Greenhouse Friendly scheme in Australia (Australian Government 2006a).

In 2006, forestry was the most popular offset mechanism in the voluntary market, accounting for 36 percent of market share (Hamilton et al., 2008: Figure 12). Customers see trees and forests as tangible, providing habitat and generating community benefits (Brand and Meizlish, 2007). Of the 43 retailers of offsets listed by Bayon et al. (2007, p.126), 23 sold forestry

A/R plantation Mixed 2% A/R mixed

A/R plantation Mixed 2% A/R mixed

Notes:

Afforestation/reforestation by plantations (A/R), by mixed native species and by avoided deforestation made up 15% of the total sold a Coal MM = Coal mine methane capture. b RE = Renewable energy.

c RE C = Renewable energy credit in electricity grid. Source: Hamilton et al. (2008: Figure 10).

Notes:

Afforestation/reforestation by plantations (A/R), by mixed native species and by avoided deforestation made up 15% of the total sold a Coal MM = Coal mine methane capture. b RE = Renewable energy.

c RE C = Renewable energy credit in electricity grid. Source: Hamilton et al. (2008: Figure 10).

Figure 3.1 Proportions of types of non-Chicago Climate Exchange voluntary offsets, 2007

offsets: some exclusively and some with a mix of products. However, the relative popularity of voluntary forestry offsets weakened considerably in 2007, constituting only 15 percent of the voluntary market, as illustrated in Figure 3.1. The relative weakening of interest is likely to be due to inherent difficulties in marketing forestry offsets compared with other offsets; an issue that is dealt with below.

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